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Presentation by the South African Reserve Bank to the Portfolio Committee on Finance

Presentation by the South African Reserve Bank to the Portfolio Committee on Finance. Quarterly Bulletin March 2011 13 April 2011. Introduction. International oil prices have risen sharply in the wake of tensions in the Middle East and North Africa. Brent crude oil prices.

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Presentation by the South African Reserve Bank to the Portfolio Committee on Finance

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  1. Presentation by the South African Reserve Bank to the Portfolio Committee on Finance Quarterly Bulletin March 2011 13 April 2011

  2. Introduction

  3. International oil prices have risen sharply in the wake of tensions in the Middle East and North Africa Brent crude oil prices

  4. Domesticeconomic developments

  5. Real gross domestic production increased further in the fourth quarter of 2010… Real gross domestic product

  6. …reflecting positive growth in the three main sectors of the economy Real gross domestic product by main sector

  7. At the same time, domestic final demand continued to grow at a steady pace Final demand

  8. While household debt increased somewhat, household debt and the debt service cost of households receded relative to disposable income Household debt and debt-service ratios

  9. The pace of employment creation picked up in the fourth quarter of 2010 Formal non-agricultural employment Public sector Total Private sector

  10. Nominal remuneration increases continued to exceed consumer price inflation Wages and targeted inflation QB March 2011

  11. Consumer goods price inflation as well as producer price inflation accelerated recently

  12. The current-account deficit narrowed significantly in the final quarter of 2010 which largely reflected a larger trade surplus… Balance of payments: Current account Trade account (exports minus imports) Service, income and current transfer account Balance on current account

  13. …in turn assisted by a surge in international commodity prices International prices of selected South African export commodities

  14. The nominal effective exchange rate of the rand declined somewhat in January and February 2011 before strengthening again in March Effective exchange rate of the rand

  15. Money, credit and finance

  16. Growth in money supply regained some momentum during the second half of 2010 Growth in M3

  17. M3 deposit holdings of the corporate sector picked up noticeably in 2010 while that of the household sector remained subdued M3 holdings of households and companies

  18. Banks’ loans and advances started a modest recovery during the second half of 2010 Total loans and advances to the private sector

  19. Other loans and advances and instalment sale credit and leasing finance recovered in the course of 2010 Loans and advances to the private sector by type

  20. The repo rate has been unchanged since November 2010, and market participants are expecting an increase in short-term interest rates by late 2011 Money-market rates

  21. Non-residents have consistently been net sellers of RSA bonds from October 2010 Annual cumulative net purchases of bonds by non-residents

  22. Share prices trended higher from August 2010 to March 2011 Share and commodity prices

  23. Still no sign of a quick recovery in house prices House prices

  24. Retail bonds have grown in popularity, with people of pensionable and near pensionable age constituting the largest category of investors Amount invested in South African retail bonds by age of investor, February 2011

  25. The latest Budget projects the public-sector borrowing requirement to narrow over the medium term Public-sector borrowing requirement* Reasons: - Cyclical narrowing as tax collections rise with a stronger economy - Smaller borrowing requirement of public corporations

  26. QB December 2010

  27. Box on impact of oil price on inflation

  28. Response of consumer prices to an oil price increase of US$10 per barrel • A sustained increase of $10 per barrel results in • an increase in inflation of around 0,3 percentage points in the first quarter… • …rising to slightly more than 0,6 percentage points after four quarters

  29. Flow chart of the price formation process in the core model Inflation expectations Producer prices Average remuneration per worker Consumer prices GDP deflator Unit labour cost Output gap Past inflation Import prices Produc- tivity Real GDP M3 money real GDP Import prices Admin prices Output gap Employ- ment Output gap Exchange rate Oil price Inflation target rate

  30. Thank you!

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